RAPAPORT... De Beers’ profit dropped in the first half of the year as
weak demand at the trade and consumer levels impacted diamond prices, the
company said Thursday.

The rough market was subdued due to high inventories in
both the midstream and the retail sector, as well as a slowdown in growth of
consumer demand, the miner explained. The US-China tariff dispute, protests in
Hong Kong and the strong US dollar hit retail performances outside the US,
especially in China and the Gulf region. In the US, retailers’ store closures
and reduction of stocks weighed on polished demand, creating a further negative
effect for the rough business, De Beers added.

Earnings before interest, taxes, depreciation
and amortization (EBITDA) slumped 27% to $518 million as a result of the impact
on margins, the miner reported. Total underlying earnings fell 7% to $187
million. Revenue slid 17% to $2.65 billion, with rough-diamond sales decreasing 21% to $2.3 billion. Other revenues came from businesses such as Element
Six, its industrial-diamond unit, and De Beers Jewellers, its high-end retail
chain.

“The lower rough-diamond sales reflected higher-than-expected
polished stocks at retailers and the midstream at the beginning of 2019, with
overall midstream inventory levels continuing to be high throughout the first
half,” De Beers noted.

De Beers’ rough-price index, measuring prices on a
like-for-like basis, fell 4% for the period versus a year earlier. The average selling price declined 7% to $151
per carat, influenced by a change in the sales mix caused by the weaker
conditions.

The company expects those challenges to continue in the
short term, but also foresees an improvement as the industry reduces its
inventory and consumer demand rises.

“Underlying GDP [gross domestic product] growth remains
supportive of consumer-demand growth, and is expected to bring midstream and
retailer stocks back to more normalized levels as we move into 2020, subject to
an improving macroeconomic environment,” De Beers said.

Last week, De Beers reduced its production outlook following
low demand, forecasting output of 31 million carats this year, whereas it had previously
expected to recover 31 million to 33 million carats. Production fell 11% to
15.6 million carats during the first half, as the company chose not to increase
mining levels at other deposits to compensate for a lull at the Venetia mine.
Output at the site in South Africa has fallen amid its transition from open-pit
to underground operations.

Image: Rough diamonds with sorting labels at the De Beers Sightholder Sales South Africa building in Kimberley, South Africa. (De Beers/Ben Perry/Armoury Films)